The cause of the housing crisis? Look in the mirror
Let’s look at the housing shortage through the lens of planning permission objections. We rarely think about the impact on house prices of individuals or groups of individuals opposing planning permission.
Each objection may be legitimate but, in the aggregate, planning objections have a knock-on effect on the availability and cost of housing. Indeed, the trade-off between individual rights and the collective good, so evident when planning restrictions are sought via objections, goes to the very heart of macroeconomics.
One of the most important laws of macroeconomics is the “paradox of aggregation”: what is good for the individual is not always good for the collective. For example, if the Government announces a tax break for first-time buyers, it feels good to the individual first-time buyer.
However, it will only confer an advantage on the individual if she and only she gets that tax break. If everyone gets it, the unique advantage will be cancelled out and maybe even reversed by the aggregate rise in starter-home prices, driven by the tax break.
Interestingly, when we think an advantage is conferred on us, we rarely consider how this plays out through the society and the economy. If, for example, you buy a posh car, it confers status only as long as few others buy a similar one. In fact, such a purchase throws down the gauntlet for others to match us or go one better.
Such is the nature of the modern economy. It really works like a crowd in a football match. When one lad stands to get a better view, he forces everyone behind him to do likewise, and in no time the entire stadium is standing when we had all paid to sit.
The economy works in the same way, as individual advantage is quickly eliminated, and the cost is borne by someone else.
Now consider the aggregate effect of either individual or organised community opposition to planning applications. We have a housing crisis and one of the reasons for this is that we can’t build enough homes quickly enough across all income brackets. As a result, the housing shortage puts pressure on the housing market, from the rental sector to the upper echelons of the market.
As a result, more accommodation is needed, and quickly. As land is a resource, it is only productive if it is being used. In a housing crisis, its most productive use is for accommodation. And in urban and suburban areas with the best transport links, the best schools, the best public infrastructure, roads, shops and other amenities, housing development should be more intensive.
The value of property in these areas is not generated by the individual owners, but by the collective public investment in such places. The same goes for urban areas where generations of communal investment underpin individual property values. When people oppose denser/higher housing development in the city, what they are actually trying to do is privatise public investment in their existing property values.
Likewise out in the suburbs, opposition to planning applications can be good for the individual but bad for the collective because it limits the amount of land that should/could be used for accommodation. So what is good for the individual is not good for the greater community.
In Ireland, as house prices have increased relentlessly, the premium in living in good areas has risen in tandem. Not surprisingly people who are fortunate to have done well in the process move to “lock in” those gains by preventing others moving in and availing of the same amenities – be it access to schools, a public space or a sea view.
This leads to a syndrome which is often termed “bananaism”. “Banana” in this context stands for “Build Absolutely Nothing Anywhere Near Anything”. Welcome to the Banana Republic, a place where time stands still, advantage is enshrined and the collective is secondary to the individual.
All over Ireland, bananaism is evident and it is slowing progress because it is limiting zones of development. For example, in Dublin, within the M50 where we should be building, 47 per cent of the total space is grass – either parks or back gardens. The Banana Republicans want to keep it that way; the rest need it to be developed to reduce house prices, reduce rents and make better and fairer use of public investment. Now let’s add an extra local political spice to our dish.
Ireland’s PR electoral system means that few seats are absolutely safe and where they are, political parties’ vote management implies that no votes are wasted. This also means that a dedicated residents’ association, deep in the Banana Republic, can wield enormous power by threatening to vote against a politician who doesn’t side with them in their efforts to block development.
This leads to politicians who bemoan the lack of housing supply in the country and fulminate against rising rents, lining up with local residents who want to stop the very development that will create more housing supply – which is the solution to the problem.
We term this form of politics “nimtoo”. “Nimtoo” stands for “Not In My Term Of Office”. So politicians might support more housing as a national conceptual objective but not on their turf while in office. It is not hard to see how the system seizes up under the twin forces of banana and nimtoo, reducing the available footprint or height for development, forcing people out of cities, amplifying commuting times and driving up house prices and rents.
Sometimes when we are looking for reasons for the housing crisis, looking in the mirror mightn’t be a bad place to start.